Book review: Spend 'til The End

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Spend 'Til the End: The Revolutionary Guide to Raising Your Living Standard--Today and When You Retire by Laurence J. Kotlikoff and Scott Burns.

My wife spotted this book at the library and brought it home, suggesting (based on the title) that it might be a sort of anti-Wise Bread that I could read and mock.  When I started reading it though, I found it wasn't.  In fact, it's an outstanding personal financial book:  It offers the best framework for analyzing household finances of any book I've read.

The book is based on three ideas.  Two of the ideas I agree with wholeheartedly.  The third idea is actually the most important, but I agree with it perhaps three-quarters heartedly--and that's enough that the book still works for me.

The ideas are:  

• Maximize your spending power.  That is, allocate your financial means to meet your financial ends.  (It doesn't mean to let your financial ends overwhelm your non-financial ends, just that it's silly to have financial means that go unallocated or financial ends that are underfunded when others are overfunded.)
• Price your love.  By this the authors mean, roughly the same thing I mean when I say live in accordance with your own values.  All the things you want to do have costs attached to them--either actual expenses, or else trade-offs such as reduced earnings if you choose to do what you love rather than what would earn you the highest income.  Figure out what those expenses and trade-offs come to in dollars, and use that knowledge to live the life you'll find most satisfying.
• Smooth your living standard.  This is the one I only three-quarters agree with.  Financial advisors continually warn that people aren't saving enough for retirement--pointing out that their free-spending ways now will result in them eking out a meager existence later.  Fewer people do the reverse--eke out a meager existence now so that they'll be able to live high on the hog when they're old--so not as many people feel obliged to warn against it, but that happens too.  The authors' point, though, is to do neither.  Based on how you want to live and what your prospects are for making money, figure out what standard of living you can support over your entire lifetime, and aim for that mark right along the way.

Personally, I think a gradually rising standard of living is likely to be more satisfying than a level one, but the authors aren't really disagreeing with that.  They're mainly concerned with the big breakpoints in standard of living--before and after retirement, for example.  (I've covered my own thoughts on this topic in my article Should your standard of living rise?)

The value in these ideas is that they provide a framework.  With these things in mind, you're in a position to analyze all sorts of financial questions.

Using their framework, they often come up with results that are counter to conventional wisdom.  For example, the usual rule of thumb is that young folks should invest in stocks (giving them the best opportunity to let the long-term higher rewards of the stock market work in their favor) and then gradually ramp down the stocks (because folks nearing retirement have fewer years to recover from a bad year in the stock market just before or just after retirement).  Their analysis is quite different.  

A young worker probably makes just enough to support a comfortable standard of living.  Besides that, a young worker probably has a very small cash cushion against something like losing a job.  So, a young worker should have a low savings rate (so as to support a reasonable standard of living) and should put most of that savings into cash (focusing on building up a better cushion rather than maximum lifetime return).  Someone mid-career with good emergency fund plus a healthy investment portfolio can afford to invest heavily in stocks without risking either current or future standard of living.  Someone approaching the end of their career wants to ramp down the stock market exposure, because their earnings are at higher risk (old folks are more likely to lose their jobs and less likely to quickly find another).  Someone who has just retired probably wants to ramp it up again, because they now have a very safe stream of income from Social Security and can bear the risk.

They provide worked examples of many, many issues that financial advisors and financial writers deal with:

• Should you go back to school?  
• Should you convert your IRA to a Roth?  
• Are you saving enough?  
• Do you have enough insurance?  

They provide answers to these and many other questions, but the answers are almost beside the point.  What's valuable is the analysis--and, even more important than the analysis, the framework for doing the analysis.  In Spend 'til The End Kotlikoff and Burns provide the underpinnings of that framework.  I recommend it highly.